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The Slow and Steady passive portfolio update: Q1 2015

The portfolio is up

The previous thrilling installment of our model portfolio saw us undertake some major asset allocation surgery – diversifying into global property, inflation retardant government bonds, and fruity small caps.

How has that worked out?

Well, none too shabbily. The property fund is up nearly 9% on the quarter, the small caps are up over 9% (outstripping our other equity holdings, as you might hope during good times) and even our index-linked bonds posted a 3.44% gain.

In fact every single asset has soared, with the rising dollar acting like a thermal under the wings of much of our overseas allocation. (As the dollar advances so does the value of our US assets).

Here’s the portfolio latest in glorious spreadsheet-o-vision:

This snapshot is a correction of the original. N.B. Glb Prop, Dev World, Small Cap and Inflation Linked bonds show year-to-date returns as holdings are less than one year old. (Click to make bigger).

It’s been an exceptionally benign quarter, as the tree rings of our portfolio show a growth spurt of over 6%.

That means our portfolio is up £4,800 and 31% from year zero.

The Slow & Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000 and an extra £870 is invested every quarter into a diversified set of index funds, heavily tilted towards equities. You can read the origin story and catch up on all the previous passive portfolio posts here.

Easy money

These are the times when it’s easy to be an investor – when everything you touch turns up trumps.

Just looking at the numbers releases feelgood juice. I can feel the indestructibility chemicals bathing my ego.

Which definitely makes this a good time to keep myself on edge by reading a doomster post or two about wildly overvalued markets.

Things have gone so well for so long that we’re in danger of losing touch with the feelings of loss and despair handed out by the market in 2008. It’s starting to feel like it happened to someone else.

Recently my mum inquired about how well her portfolio was doing. I was reluctant to say. I don’t want her to get used to the idea that equities only go up.

I try to think of it like some crazy game show. The money isn’t mine until I bank it. The earlier I bank it the less likely I am to hit the jackpot. Taking losses is as big a part of the game as enjoying the high rolls. Except losing is much more painful, so don’t overreach yourself.

Rebalancing is a good way to take a little risk off the table if you’ve been riding your luck for a while.

It’s worth mentioning that I don’t know how this new version of the Slow & Steady portfolio stacks up against the previous version. I make it my business not to know. The decision is made and there’s nothing more pointless than buyer’s remorse. I’m not going to torture myself with alternative histories.

Even if this new version has its nose in front then it may not stay there. And the difference will be slight.

In any case, there’s an infinite number of portfolios that are doing better and worse. I didn’t choose any of them.

This is the one I did choose and the underlying strategy is sound. That will do me.

In other news we’ve earned £12.99 in interest income from our UK Government bond fund. We celebrate by automatically reinvesting it back into our accumulation funds – adding a few extra ice crystals to our burgeoning snowball.

New transactions

Every quarter we sink another £870 into the market’s whirlpool. Our cash is divided between our seven funds according to our asset allocation.

We use Larry Swedroe’s 5/25 rule to trigger rebalancing moves, but all’s quiet this quarter. So we’re just topping up with new money as follows:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.08%
Fund identifier: GB00B3X7QG63

New purchase: £87
Buy 0.537 units @ £162.04

Target allocation: 10%

Developed world ex-UK equities

Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.15%
Fund identifier: GB00B59G4Q73

New purchase: £330.60
Buy 1.424 units @ £232.15

Target allocation: 38%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.38%
Fund identifier: IE00B3X1NT05

New purchase: £60.90
Buy 0.311 units @ £195.99

Target allocation: 7%

Emerging market equities

BlackRock Emerging Markets Equity Tracker Fund D – OCF 0.27%
Fund identifier: GB00B84DY642

New purchase: £87
Buy 71.078 units @ £1.22

Target allocation: 10%

Global property

BlackRock Global Property Securities Equity Tracker Fund D – OCF 0.23%
Fund identifier: GB00B5BFJG71

New purchase: £60.90
Buy 37.202 units @ £1.64

Target allocation: 7%

UK gilts

Vanguard UK Government Bond Index – OCF 0.15%
Fund identifier: IE00B1S75374

New purchase: £121.80
Buy 0.824 units @ £147.79

Target allocation: 14%

UK index-linked gilts

Vanguard UK Inflation-Linked Gilt Index Fund – OCF 0.15%
Fund identifier: GB00B45Q9038

New purchase: £121.80
Buy 0.788 units @ £154.67

Target allocation: 14%

New investment = £870

Trading cost = £0

Platform fee = 0.25% per annum

This model portfolio is notionally held with Charles Stanley Direct. You can use its monthly investment option to invest from £50 per fund. Just cancel the option after you’ve traded if you don’t want to make the same investment next month.

Take a look at our online broker table for other good platform options. Look at flat fee brokers if your portfolio is worth substantially more than £20,000.

Average portfolio OCF = 0.18%

If all this seems too much like hard work then you can always buy a diversified portfolio using an all-in-one fund like Vanguard’s LifeStrategy series.

Take it steady,

The Accumulator

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{ 41 comments… add one }
  • 1 Under The Money Tree April 7, 2015, 9:14 am

    Ah….there’s nothing like a sea of green %’s to make you feel like the next Wozza B!

  • 2 Damian April 7, 2015, 9:29 am

    Sorry if I’ve missed it but which investment platform are you using? I would like to get some bonds as well but my current one only offers funds.

  • 3 Moongrazer April 7, 2015, 1:16 pm

    I’ve just jumped into the investment train in the past month so it’s really interesting reading these quarterly updates. I’ve ended up constructing a portfolio not dissimilar to your lazy one (with some differences according to my taste for risk).

    I’d be interested to know your thoughts on the worthwhile-ness of having a specific UK small cap or value fund in the mix. In my portfolio I’ve got 8% in Vanguard’s Global Small Cap, but also with my UK 12% portion I’ve divided it into 8% Vanguard FTSE UK All Share, and 4% Vanguard FTSE UK Equity Income. However, I’m having second thoughts about the latter. That it’s a value tilt rather than small cap (albeit a dividend-based one) does lend some additional diversity. However I was reading one of your other posts where you mentioned the Aberforth UK Small Companies fund – I was also considering Baillie Gifford’s British Smaller Companies. But perhaps with the Global Small Cap there really isn’t a need?

    (P.S. I’m not asking you to give me advice specific to my needs – only what your thoughts are on splitting the UK fund up and thereby having some currency protection but in small cap or value.)

  • 4 atlanticspan April 7, 2015, 1:52 pm

    Hi,I always look forward to reading your Slow & Steady Portfolio updates,and even more so at the moment,as I am interested in adding commercial property to my portfolio. However I’m sure I saw in one of the myriad of investment books that I’ve read that there has to be a negative correlation between equities and the property fund that I invest in if I am to spread my risk. Also that I should only invest in funds that actually own the properties rather than shares in the fund? Does this make sense and if so,does the fund you have listed fit this criteria?
    Thanks for a truly great website.

  • 5 Aron April 7, 2015, 3:03 pm

    Look at all that green!

  • 6 Nigel April 7, 2015, 3:21 pm

    I have followed your blog for a couple of years now, and love it. Just one point on your slow &steady portfolio- there will come a point where it is cheaper to hold this with a fixed fee broker, rather than one who charges a percentage. Will you transfer it at that point?

  • 7 John Investor April 7, 2015, 7:34 pm

    Is all good that you prefer to make your own portfolio instead of Vanguard Lifestrategy (or any other low cost, index strategy).
    One thing that I don’t understand is why do you do low cost indexing and then you end up paying 0.25% in platform costs when, in the UK, you have cheaper platforms available with access to all the indexes you are using.

  • 8 John Investor April 7, 2015, 8:30 pm

    You only have 20,000 on that portfolio and you manage 7 positions. Assuming worst case scenario that would be rebalancing every quarter and every position = 4*7 = 28 transactions. Even at 5.00 that would be 140.00 GBP.
    Now your cost is 0.25% or 50.00 GBP.

    I’m assuming you prefer to have a fix cost than to risk having an higher cost because of rebalancing?

  • 9 Andy April 7, 2015, 8:52 pm

    “If all this seems too much like hard work then you can always buy a diversified portfolio using an all-in-one fund like Vanguard’s LifeStrategy series.”

    How significant do you think the advantages are of maintaining a portfolio like the Slow and Steady versus just putting everything into a LifeStrategy fund? I’ve got everything in LifeStrategy 80 at the moment and I’m trying to work out the pros and cons of taking a more manual approach.

  • 10 The Investor April 7, 2015, 8:56 pm

    @John — Rebalancing these index funds is free. They are not ETFs. There are no trading costs at all.

    @Others — Readers have contacted us as usual to ask about how to do this via Charles Stanley. T.A. has explained before you can use its monthly investment option to invest from £50. If you don’t want to invest every month then just cancel any successive trades. (He also suggests look at Cavendish Online.) If ISA fund portfolio is worth more than £32K then look at flat fee brokers. Hope this helps.

  • 11 Grand April 7, 2015, 9:02 pm

    April to April I managed to put away 53% of my annual salary. That’s mainly thanks to the encouragement from the patrons that make this website what it is. I have been somewhat worried though, that each month I’ve been adding positions to my portfolio at higher and higher prices…. somethings got to give right? It’s weird I actually worry less when the ticker is red and worry more when it’s green!

  • 12 Moongrazer April 7, 2015, 10:11 pm

    Grand: I think much the same as you do – it’s nice that prices go up and all, but for someone investing regularly that means you get less and less for your money. But then, if the market is fairly valued that just means you’re paying fair price. If the market is overpriced and due for a correction, then at least later investments will buy in at better prices. That’s the pound/dollar cost averaging pro/con.

  • 13 Paul W April 7, 2015, 11:10 pm

    @TA

    Whenever there is an outflow of an asset, the percentage of asset gain is calculated incorrectly. Just look at the gain of UK Government Bond Index fund now and the previous quarter: 33.95% vs 14.95%. The amount in an outflow column consists of some historic gain and some originally invested capital. When calculating the asset gain percentage you can’t simply subtract it from an asset inflow and use the result as a denominator because as with the above mentioned fund the formula subtracts gain accrued from roughly twice as big inflow. Hence the gain percentage more than doubled in a quarter.

  • 14 M from theresvalue April 8, 2015, 8:16 am

    It’s wonderful to see all that green, I’ve got some of the same funds/trackers in some of the portfolios I manage.

    Moongrazer – in my NISA I let the income accumulate and then buy something that I feel is good value at the time, rather than automatically reinvesting like I used to in the past. It somehow feels better over the long run, and with equities it’s cheaper on dealing costs.

    Cheers

  • 15 Moongrazer April 8, 2015, 10:01 am

    @M: That’s certainly an interesting approach. I guess if I was more versed/confident to say what is “good value” (i.e. a more active approach) then that would work for me. As it is, I’m just starting out and while I learn more every day, it’s probably better to just let the divs reinvest automatically in accumulation funds.

    That said, there’s a logic to having Income funds and reinvesting the divs according to your % allocations rather than letting them snowball into their respective funds (if your provider charges for buying/selling funds or ETFs that could save you dealing charges in the long run).

    As it is, my providers (TD & CS) don’t charge for dealing funds, so the argument is somewhat moot for me.

    On the subject of deciding what is good value – it’s certainly interesting to hear the commentary on the US being overvalued right now. Trouble is, I’m invested in Vanguard Dev World ex UK, so separating out the US from Europe, Japan, etc. would mean buying multiple funds to replace one! (To say nothing of the global funds I currently hold.)

  • 16 Richard April 8, 2015, 10:08 am

    @Grand. That’s hugely impressive!

    I think many people worry about buying when the market’s going up (a fact) or is “near the top” (an opinion).

    If all you were interested in was long-term capital gain, you’d save all your money as cash (in a tax-efficient wrapper) and then buy in bulk after every crash. We’ve all looked back at the historical graphs and wished we’d bought at the bottom…

    On the other hand much of the return from investing is from dividends, so you have to be in the market to get those returns.

    I try to see the longer term and have concluded that it’s simpler to invest regularly and try to forget about everything else. There are times I’ll buy at the top of the market and times at the bottom. But if I believe (as I have to, to be an investor) that the market generally moves upwards over time (but with lots of volatility) then I’ll have paid a roughly average price for my shares over a market cycle and the market will generally go up, and will pay dividends. Thus I’ll win in the long term.

    I also try not to be greedy. With a, say, 30 year investment horizon, a 4% average real return compounded will more than triple your money in real terms. If I’m getting 4% real per annum on equities I’m happy, although my financial models use a very prudent 2% real.

    @Andy. The S&S portfolio is probably closest to the Lifestrategy 80. That returned about 7% in Q1 – not dissimilar to the S&S portfolio. I suspect many of us would like to put all our money in a LS fund and forget about it – but we all like tinkering too much!

  • 17 The Rhino April 8, 2015, 11:05 am

    @ Paul W, TA

    I’ve noticed that working out % gains losses is a bit of a challenge, its definitely the bit of my spreadsheets that makes my head hurt the most. In fact I’d say its more than a bit of a challenge – its really hard (and I’ve got a PhD in computational physics). I still don’t think I’ve got it quite right, although it has improved from my early attempts. I think there could be a nice series of articles in DIY accounting, i.e. how to build spreadsheets for tracking your investments, working out % gains/losses, spreadsheets that make filing tax returns easy. That sort of thing. Really practical stuff for the DIY investor.

  • 18 Richard April 8, 2015, 11:34 am

    @The Rhino

    I’d certainly agree with you there (and I’ve got a PhD in astrophysics).

    I try to get around it by viewing returns two ways.

    Firstly I simply track cash paid into my account, and then review the valuation of the whole account. This gives me the return on the account, so tells me how well I’m doing in aggregate. This is the most important number for me.

    All my funds are accumulation so it helps that I’m not dealing with income.

    I then track the return on each fund based on what I paid for it. This tells me how well judged that purchase was.

    The difficulty is when I trade.

    If I put £1,000 into a Fund A and it goes up to £1,400 and I then trade that for £1,400 of Fund B and it goes down to £1,300 my s/s (and my broker’s reports) show that I’ve made a £100 loss. However I really view this as a £300 gain.

    It gets more complicated (read impossible) when I sell multiple funds to by others. Unless you start dealing with average costs, etc, it can get a bit foggy.

    I think everyone struggles with this. In some of my broker’s reports the average cost of funds is shown by purely averaging the price paid for each lot, with no weighting for the number of units bought. Truly odd.

    I agree that a series of articles on building a tracking s/s would be very useful. That’s if there’s anyone who really understands how to do it! 🙂

  • 19 Paul W April 8, 2015, 12:18 pm

    I think the most useful percentage gain/loss of an asset class (and in fact a whole portfolio itself) would be total return over time divided by a time weighted average capital invested in that asset class. For example:
    1 quarter: £100 invested, £120 gain
    2 quarter: £120 invested, £40 loss
    3 quarter: £1000 invested, £100 loss

    Instead of quarters you can use another time unit, even days.

    sum of gains/losses: -£20
    average capital invested (easy because time periods are even but time weighted in general): (100 + 120 +1000)/3 = 406.67

    hence the percentage gain/loss = -(20/406.67)*100% = -4.92%

    So the gain of 240% from the first quarter doesn’t tell you much because it’s a small amount compared to what was subsequently invested.

  • 20 Paul W April 8, 2015, 12:37 pm

    *the gain of 120% from the first quarter

  • 21 Richard April 8, 2015, 12:44 pm

    I think, generally, these calculations are reasonably straightforward when always adding units. The complexity comes from sales, repurchases and re-invested dividends, etc.

    Take a simple example.

    I pay £2,000 into an account, and buy £1,000 of Share A and £1,000 of Share B.

    6 months later Share A is worth £2,000 and share B still £1,000. The gains on the shares are £1,000, 100% and £0, 0% respectively. The gain on the account is £1,000, 50%.

    I sell all of Share A and take the funds out of the account. At the account level I have £1,000 of shares (Share B) for no net cost in the account. The gain is £1,000 but not quantifiable on a % basis. At the share level Share B has returned £0, 0%.

    Let’s say that now Share B gives me a £100 dividend, which I take out of the account. The net cost of the account is now (£100), and the account gain is £1,100.

    At the share level Share B are still worth £1,000 in the account, but have generated £100 dividends taken out of the account. So overall Share B has returned £100, 10%, but purely within the account it is still worth only £1,000 so no gain reported.

    Instead assume I keep the £100 dividend in the account and reinvest it, buying another £100 of Share B.

    At the account level I have invested £1,000 of cash and now have £1,100 of Share B. In that sense I’ve made £100, 10% gain. But the price of each B share has not moved so at the share level (bought / reinvested £1,100, worth £1,100) I’ve made no gain.

    Assume that instead of buying £100 of Share B with the dividend I bought £100 of Share C. At the account level I have £1,100 of shares (£1,000 B, £100 C) for funding of £1,000 for £100, 10% gain.

    At the share level Share B has gained nothing, and neither has Share C. But Share C was bought for free using the Share B dividends so do I count the purchase price as £0 (in which case I’ve made a £100 gain) or £100 (in which case I’ve made no gain)? The former is at the account level, the latter at the share level (and is what your broker will declare).

    And all this is before anything too complicated!

    My take is to always separate the account performance (total value vs cash in) from the Share/Fund performance (price paid on the day vs value). The former tells me how good an investor I am, the latter tells me how good a stock-picker I am.

    Before you start your s/s ask yourself just which question(s) you are trying to answer. I build s/s to answer both the account and fund-level performance questions. But they are two different models.

  • 22 Gregory April 8, 2015, 12:51 pm

    @The Investor – The Accumulator’s portfolio consists of 83% Vanguard and 17% Blackrock funds so only 2 fund providers. Is it diversified enough?
    What do You think?

  • 23 Paul W April 8, 2015, 1:09 pm

    My first approach is flawed…

  • 24 The Rhino April 8, 2015, 1:26 pm

    @Richard

    thanks for illustrating the point – it can get bloody complicated quite quickly

    it makes me wonder how the hell people like buffet report there annual returns as a single % across a billion dollar business.

    that no. must either be very hard to come by or prob quite wrong.

    or maybe I am missing something like a general acknowledgement between accountants that a much simpler approximation is acceptable even if it is innacurate to a certain degree?

  • 25 Moongrazer April 8, 2015, 1:49 pm

    @Richard

    Interestingly I’ve had to tackle this same problem. The issue comes not from the sale of funds but that the broker reports the book cost in your *new* investment as being the actual amount invested rather than the equivalent amount you sold in the original fund.

    Easy example:

    – You buy 100 units of Fund A at £10 a unit – £1000 book cost
    – Later Fund A increases to £12 a unit
    – You sell £500 from Fund A – since your investment is now worth £1200 you are selling 5/12ths of your initial investment – £416.67 – so your book cost in Fund A decreases to £583.33
    – You buy £500 worth of Fund B – however, your broker will report (correctly) that you invested £500 in Fund B, so £500 is your book cost. – You profited by £83.33 – but that fact is not useful to you because you are in this for the long term. So now through reinvestment your broker has lost sight of the original amount you invested.

    My solution is to track this stuff separately in my own spreadsheet – if I move £500 from one fund to another, I subtract the book cost (same as my broker), but I write down that I invested that *same book cost* in my new fund, even though my broker will report a higher amount invested. On the flip side, this solution also works if a fund decreases in value (i.e. you’ve technically lost money).

    Does any of that make sense? Once I worked out what my broker was doing it helped me work out how I needed to track my own investment cash. However, I totally agree that this stuff is NOT easy!! 🙂

  • 26 Richard April 8, 2015, 2:14 pm

    @Moongrazer

    You’re right in that a broker will record the cost as what you actually paid for the fund/share at the time you make that purchase (although they knock a bit off in the first year if you buy accumulation units, but I won’t complicate things here).

    This clearly allows you to see how you’re doing as a stock-picker (at the fund / share level), but not how well you’re doing as an investor (as the whole account level).

    I do the same as you, sort of. In your example you’ve moved £500 from one share to another. Fine. But it can be more complex. For example last year I moved roughly £15k of funds from a general trading account into my ISA using “bed and ISA”. There were about half a dozen funds being sold and a few – but different – funds being bought. (I generally follow hunches in my trading account for a year, then buy something a bit more vanilla in my ISA for the long term). Tracking the original costs through the sale and repurchase of different funds would have been a nightmare. And I would have ended up with a confection of a “purchase price” that really meant nothing.

    So I track the account performance – net cash in vs current value. In my Bed and ISA example I know how much cash had been used initially to end up with those shares (there’d been some intermediate buying and selling along the way) so in my s/s I transferred that cash cost into my ISA column.

    I was showing gains on the shares sold for Bed and ISA but once new different shares are bought in the ISA they start off with – per the broker – no net gain. Of course there’s a capital gain in the trading account when doing this, but I’m careful to avoid getting into a CGT calculation scenario. Can’t be doing with that!

    Tracking performance starts off easy – you buy something and its value moves. But it gets very complicated, very quickly…

  • 27 Richard April 8, 2015, 2:23 pm

    @Rhino

    Well, I’m now an accountant, but that doesn’t help much either!

    For me it’s the hang-up on percentages that’s the problem. It’s fine if you deposit some cash, buy some shares (that pay no dividends), wait a year and then review the valuation.

    It can be a bit more straightforward if you’re disciplined. Only buy / sell at the beginning of a measurement quarter, and only disinvest / reinvest at the same time. Buy accumulation units so that no income issues. Never part sell a holding. But this is the world of model portfolios in finance magazines, rather than real-world investing.

    It’s possibly an odd thing to say but I try not to get too hung up on a very accurate measurement of performance. As I said I measure at the account level (net cash in vs today’s value) and share level (price actually paid on the day vs value today). Both can have drawbacks though. Intermediate measures of what I “really” paid for a given share / fund is the path to madness.

  • 28 dawn April 8, 2015, 3:34 pm

    I hate the fact global small caps is going up up up , i can’t get my money till mid may and ive been itching to get into vanguards global small cap index.
    can anyone confirm this index is avaliable on i web. ive searched and searched and cannot find the fund!!, do they have it? if not ill have to go for the next best thing SPDR global small caps WOSC

  • 29 Tim G April 8, 2015, 3:48 pm

    @dawn ” ive been itching to get into vanguards global small cap index.
    can anyone confirm this index is avaliable on i web.”

    Yes – this is available on iWeb.

    For anyone using iWeb, it’s worth noting that their information centre is very incomplete. A lot of funds and ETFs don’t appear at all, or it only lists the income version but not the accumulating version etc.

    The only reliable way to check is to click on the “Trade Now” option, which gives you a full search of everything that is available. (Which appears to be almost anything you might want – whenever I come across a missing ETF or Fund in the info centre, it invariably shows up here.)

  • 30 Lee April 8, 2015, 5:14 pm

    I also noticed that according to Morningstar my own portfolio has gone up every month this year. Mmm.

  • 31 Moongrazer April 8, 2015, 5:50 pm

    @Richard

    “Tracking performance starts off easy – you buy something and its value moves. But it gets very complicated, very quickly…”

    No argument there! With your multiple funds example I guess you would need to take the total value sold and make it a fraction of the original amount invested and transfer that fraction of the original amount across to your new funds as tracked in your own records.

    So if you have 5 funds (ignoring the percentages of each as they are irrelevant) which you invested £15000 in but they grew to £20000 – if you sold £15000 worth of them you would deduct 75% of the original value you invested in each fund, then transfer that as your “initial” amount in each new fund (but apportioned to whatever percentage of that £15k you in invested per new fund).

    But it’s a lot to work out and, honestly, your “total investment” vs “total current value” solution is a lot less of a headache.

  • 32 The Investor April 8, 2015, 6:08 pm

    @all — I’ve had a discussion with T.A. about the return calculations here before, I can’t recall exactly where we ended up but no doubt he’ll be able to shed more light eventually. From memory though, the returns aren’t his calculations, they are given by his portfolio tracker tool. I think he went back to the provider to ask how they were calculated and — as noted above — it got complicated! I may be misremembering though.

    By far the best way to calculate returns is to unitize your portfolio. Once you do that, tracking total returns over any time period is trivially easy, although not the per fund returns some of you guys are discussing. (Wit my method you’d have to sub-unitize those funds too, I think. I don’t bother to do that with my own tracking).

    I have had a 90% written post on this set in the vault for 6 months — will try to get it up tomorrow.

  • 33 dawn April 8, 2015, 7:50 pm

    @Tim G
    i web have confirmed they have VIGSCA but i
    still cant locate it
    i will try the trade now option like you suggested
    many thanks

  • 34 Richard April 8, 2015, 8:57 pm

    @Moongrazer

    Yes – always taking averages of whatever you do is one way forward. The downside is that you end up with a “purchase” price that bears little relation to anything you have in your head, and can be a long way away from what your broker shows as the purchase price. Your example might be what you do after a few weeks of investing. Roll forward a few years and your account will have been churned quite a few times, so purchase prices become little more than a confection to deliver you the correct overall portfolio/account gain. I’m not an active trader but a regular drip-feeder, and in the last 12m have made 86 purchases into my ISA, SIPP and trading account. If I were to move beyond a very simple tracking mechanism, I’d soon be in numerical doo-doo.

    Assume you buy 1,000 £1 shares for £1,000. If they don’t move in value but give you a 10% dividend you get £100. If you buy 100 more of the same shares you now have 1,100 shares for you £1,000 investment.

    You can treat these as different “lots” – you bought 1,000 shares for £1 each and 100 shares for £0. (Your broker will probably show all purchases as £1 each, although if you opt for automatic re-investment of dividends in the same share it might use the average method, below).

    Alternatively you can go for average accounting. Here you have 1,100 shares for a total consideration of £1,000 so about 91p each. Easier to deal with going forward but you never actually paid 91p for any share. And it always irks me to change a “fact” – i.e. lowering a purchase price from £1.00 to £91p, as – to me – a purchase price should be an immutable fact! It feels a bit like changing the date on your birth certificate… However I use average prices in my model for purchases and sales. I use accumulation units so don’t have the dilution effect that can come from dividends.

    Assuming your algebra is okay, neither method is wrong (although for legal issues, such as tax, there might be more prescriptive rules).

    Then there’s timing issues – you might want to annualise your gains. For example when I saw the Slow & Steady Q1 return I was a bit disheartened as my gain was half that. But that’s because I’ve been drip-feeding funds into my account over the quarter so I might expect my return to be half of the S&S one. So I have another model for annualising my returns…but that’s a bit wonky when the time periods are very short.

    In the end I have variant return percentages all over the place. At that point I usually go back to cash and say how much more is my total account worth, than the cash I put into it? Of course, even that’s not so simple – the funds I put in 10 years ago…should I modify them by inflation to put my whole model into 2015 pounds? CPI or RPI?

    I then usually remember that I’ve a bottle of vintage port open and that seems a much better proposition! Goodnight all.

  • 35 Fremantle April 9, 2015, 8:50 am

    …and I thought passive investing was all about simplifying your investment life…

    I simply track using morningstar, and whilst I am only 6 months in to taking my investments seriously, it does the business for me.

    Disappointed that I missed out on Blackrock Property Securities Equity Tracker gains due to timing mismatch and buying this fund just after January’s peak. Reminds me again of the the requirement for a long game, pound averaging, and focusing on asset allocation/diversification to match my risk profile.

  • 36 TT April 9, 2015, 11:38 am

    For tracking rates of return I started with Boglehead’s Calculating Personal Returns spreadsheet at http://www.bogleheads.org/wiki/Calculating_personal_returns
    I changed it to track equities, cash, bonds, P2P separately.

  • 37 The Accumulator April 9, 2015, 9:41 pm

    @ Moongrazer – the value factor has been shown to exist in the UK so there’s reason to believe that a value tilt at the UK level could increase your returns. At 4% of your portfolio it isn’t going to make a whole lot of difference one way or the other, so you could view it as an interesting experiment. I use Aberforth’s UK Small Companies fund because it’s the one way I can access UK small value reasonably cheaply. That saves me having to worry about separate small and value funds and small value has historically been the most potent repository of the value effect.

    @ Atlantic Span – you aren’t going to find a property fund that’s negatively correlated to your equities. Property isn’t negatively correlated to equities though correlation should be reasonably low.
    Also, you can’t invest in a tracker fund that directly owns property. You can only invest in one that tracks the performance of property owning companies. Which makes a property tracker more correlated with the stock market then you’d hope. So for my money, the listed tracker isn’t a perfect ringer for the property asset class but it is the best I can do as a passive investor.

    @ Nigel – the portfolio is virtual but you’re right, it would make sense to recommend a flat-fee broker at that point. I probably wouldn’t switch right at the threshold point though. The difference in cost would be negligible and the portfolio can always lose 50% of its value or more in a bad bear market.

    @ Andy – Run your own portfolio if you think you will enjoy the exercise. Or you wish to deviate significantly from Vanguard’s asset allocation. I do this, for example, because I tilt towards factors like value and small cap and because I want a property holding.

    Go LifeStrategy if you think you will find investing a hassle or if you have any doubt about your discipline when it comes to rebalancing or by chasing the performance of the latest hot fund.

    @ Grand – kudos to you for socking away 53%. That’s a mighty percentage of salary. At least if there is a crash then you’re well capable of generating the cash to invest in lower prices. And from memory, you’ve got quite a long time horizon so have plenty of time for your equities to bounce back.

    @ Paul – the figures come from Morningstar except the asset class gain / loss column as Morningstar only tracks by fund. So I had to work out that column myself and I can see now that I’ve made a mistake. I’ll see if I can find a solution. If anyone else out there has a reasonably low maintenance answer to the problem then please let me know.

  • 38 Paul W April 13, 2015, 11:45 pm

    @TA

    That would be XIRR all along. For every fund you currently hold separately and for the whole portfolio in total. All the historical inflows and outflows for funds you don’t hold anymore could I believe be thrown into a separate basket and also have XIRR run on it. XIRR function behaves very intuitively and gives correct results. It draws a line of linear growth your inflows and outflows would have to be on to get you from your first purchase to the current value of your holding. Until you get rid of another fund, the annualized gain/loss for historical holdings will not change. Even if you do, it will still be straightforward to move the money flow entries of another fund into the historical basket.

    XIRR function should receive the current value of the fund/portfolio with the current date as the last entry. As if it was sold on that day.

  • 39 Fiona A May 27, 2015, 5:01 pm

    Help please – I’ve been reading and tinkering over the years as more trackers become available, but haven’t changed anything for a couple of years. Then I read the article about unitisation, which inspired me to re-think my portfolio as the choice has widened, and costs fallen.

    I really like the look of the ‘Slow and Steady Portfolio’, but would like to keep everything as ‘Income’ as I use the divis to help rebalance: I can’t seem to find an Income version of BlackRock Emerging Markets Eq Tkr D Acc GB00B84DY642 – is there one?

    I was also thinking of having one managed fund: at present I’ve some Edinburgh Investment Trust (it’s still 5* w Morningstar, although downgraded to Bronze, but has been trading at a discount recently, .68% ongoing charge). I was considering: CF Lindsell Train UK Equity Inc (I read it differs from trackers by quite a lot, so could complement, is 5* Morningstar, Gold Fund .77% ongoing charge) OR Finsbury Growth & Income Trust (5*Morningstar, Gold Invest Trust, but .82% ongoing charge). I’ve read myself in to inaction, so any thoughts welcome…

    Everything’s held in an ISA or SIPP wrapper…

  • 40 The Accumulator June 14, 2015, 10:06 am

    Hi all, I’ve corrected the portfolio tracking snapshot in line with Paul W’s comments. I’ve used XIRR to calculate annualised returns on asset classes. Where those assets have been held for less than a year then I’ve calculated year-to-date. My thanks to Paul W for his behind-the-scenes advice and for spotting the error in the first place.

  • 41 Paul W June 14, 2015, 3:10 pm

    You are welcome. And I have learnt a lot thanks to the other people commenting.

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